Forecasting Changes of Economic Inequality: A Boosting Approach

We use a boosting algorithm to forecast changes in three income- and three consumption-based inequality measures. We study quarterly UK data covering the period from 1975Q1 to 2016Q1. We find that the boosted forecasting models, at forecasting horizons of up to one year, have predictive value for changes in the six different inequality measures. Evidence of predictability is strong when we use information criteria that result in relatively parsimonious forecasting models. In addition to lagged inequality measures, stock-market developments and fiscal deficits and, for the consumption-based inequality measures at a forecast horizon of four quarters, economic policy uncertainty and output growth turn out to be relatively important predictors.